Q. My father and mother live in an assisted living apartment near me. They are in their late 80's. He has health problems and early stage Alzheimer's. She has had several small strokes and falls. She uses a wheel chair most of the time. Her mind is quite good, unless she is very tired or the meds overwhelm her. Until recently she has managed all their finances and has done a good job. Their cost, at this time, is $4,700 a month--- nice apartment and super care.

Mother has accepted my help with bill paying and has given me power of attorney. They have $260,000 in CDs with several small town banks. They are earning 1 to 1.8 percent. What do you suggest we do with at least some of their money to help it grow?

They can afford what they are doing now. The increase in costs could come, about 30 to 40 percent, if my father has to go to a separate Alzheimer's unit. Shouldn't we try to make this money appreciate in case it is needed for future care expenses?

---L.R., by e-mail from San Antonio, TX

  

A. It's not a pretty picture. And I think some vital information is missing, since I don't think their Social Security and about $4,000 in CD interest income would pay their current $56,400 annual care bill. More important, there is no way to squeeze an additional $17,000 to $22,500 from their savings.

Basically, they're in a race between their life expectancy and their assets. While their actuarial table life expectancy is around 5 years, your description suggests the odds are they won't live that long. That means they probably won't outlive their money.

If, for instance, their $260,000 earned 2 percent they could draw $4,557 a month from principal and interest for 5 years before exhausting their money. They could withdraw $2,392 a month for 10 years before exhausting their money.

The best way to deal with this situation is to build a ladder of Treasury Securities that will bring the anticipated additional cash. This means you will invest---and spend--- about $25,000 in each of the next 5 years. Recently, for instance, yields on 1 to 5 year Treasury obligations ranged from 1.98 percent (1 yr) to 3.43 percent (5 years). This can all be done, by the way, at a very nice facility for building ladders on the Fidelity Investments website. It is available to people with accounts at Fidelity. These yields are an improvement on your current CD yields. You can add an additional year by investing $25,000 in iSavings Bonds. These will yield 1 percent plus the rate of inflation over the next 5 years and the interest will be tax deferred.

You need to understand that this money will be spent. Each maturity represents about 12 months of the additional cash your parents may need.

This leaves $10,000 as available cash and $125,000 for longer term investing. This money represents an additional "cushion" to finance expenses in the event your parents survive more than 6 years.

Where should that money be invested?

If you are a couch potato investor, try Vanguard Balanced Index fund. Over the last 10 years it has done better than 75 percent of all competing balanced funds. Vanguard Wellington, Vanguard Asset Allocation, and Vanguard STAR--- competing managed balanced funds--- have all done somewhat better over the last 10 years. Another managed balanced fund with a first class track record (top 2 or 3 percent over the last 5, 10, and 15 year periods) is Dodge and Cox Balanced (ticker: DODBX).

Finally, there is the Medicaid issue. If limited amounts of money are transferred to you each month, you can build a separate account that can be used for their minor personal expenses if they outlive their assets and qualify for Medicaid. This is a complicated matter so don't do this on your own. Consult an elder law attorney to learn about Medicaid spend-downs.